Perry today reported a 7.3 percent stake in the retailer
and echoed Ackman’s comments that the board should seek to
quickly overhaul its management. The board isn’t functioning
effectively, major personnel decisions are being made without
the advice of all directors and important financial information
is being withheld, Ackman, whose Pershing Square Capital
Management LP is the company’s largest shareholder, said in a
separate letter to fellow board members today.

Perry’s support gives Ackman, who handpicked former CEO Ron
Johnson, more sway as he presses J.C. Penney to name a new team
that can implement a turnaround plan and stanch his losses on
the stock. Ackman and Perry together own about a quarter of the
retailer’s shares. The rest of the board so far has stood its
ground, saying that Ullman is the right CEO to revive the
company and that the board is working properly.

“He’s clearly alienated the rest of his directors on the
board,” Jeffrey Sonnenfeld, senior associate dean at the Yale
School of Management, said in an interview. “His chosen
candidate, Ron Johnson, virtually destroyed this great American
icon and now he’s throwing a tantrum about the guy they brought
in to replace him.”

Ullman, who returned on an interim basis at age 66 in
April, has revived price cutting and brought back merchandise to
attract core customers alienated by Johnson’s strategy, which
centered on ending discounting and remaking the stores into
collections of boutiques.

Ullman Decisions

Ackman today criticized Ullman for making a number of
important decisions without consulting the full board. Ackman
said he terminated AlixPartners, which a person familiar with
the matter told Bloomberg had been hired in April to help the
retailer get fresh financing. Ullman also cut off Blackstone
Group LP’s access to the company’s financial information and
ended its role in analyzing the company’s position, Ackman said.

Ullman has been using Centerview Partners LLC and co-founder Robert Pruzan, Ackman said. Representatives of
Blackstone didn’t immediately respond to requests for comment.
Tim Yost, an AlixPartners spokesman, and Christopher Beattie, an
outside spokesman for Centerview, declined to comment.

Other personnel moves that Ackman said the full board
should have been consulted on include the hiring of Debra Berman
from Kraft Foods Group Inc. as senior vice president of
marketing, which was announced earlier this week.

Personnel Moves

Ullman also fired Sergio Zyman, a former Coca-Cola Co.
advertising executive, who had been brought in as a marketing
consultant in February, and pushed out Senior Vice President of
Operational Strategy Bob Peterson, Ackman said. He said he was
told Vice President of Financial Planning and Analysis Susan Ray
was fired.

A message left on Ray’s voicemail wasn’t immediately
returned, nor was an e-mail to Peterson and a message with
Zyman. Messages left for J.C. Penney spokesmen weren’t
immediately returned.

Engibous said today that Ackman’s accusations of board
dysfunction were “misleading, inaccurate and
counterproductive.”

“The Board is focused on the important work of stabilizing
and rejuvenating the business,” Engibous said in a statement.
“It is following proper governance procedures, and members of
the Board have been fully informed and are making decisions as a
group. This includes the CEO search process, which is being
conducted at an appropriate pace.”

CEO Search

The board agreed July 22 to begin a search for a CEO, to be
named within six months, according to a person familiar with the
matter, who asked not to be identified as the process is
private. Ackman is pushing to find someone by mid-September
since there are only a few candidates, the person said.

Among possible candidates for the next CEO are Foot Locker
Inc. CEO Ken Hicks, Bon-Ton Stores Inc. chief Brendan Hoffman
and Hudson’s Bay Co.’s Bonnie Brooks, according to the person.

Spokesmen for Foot Locker and Bon-Ton didn’t reply to
requests for comment. Andrew Blecher, an outside spokesman for
Hudson’s Bay, declined to immediately provide a comment.

J.C. Penney has hired executive recruiter Heidrick &
Struggles International Inc. to assist with the CEO search,
according to a person familiar with the process who asked not to
be identified because the details are private.

Ackman, 47, told board members in a letter yesterday that
he persuaded former J.C. Penney CEO Allen Questrom to agree to
return as chairman if he approves of the department-store
chain’s next CEO and said today that Questrom may return even
before one was chosen.

‘Critical Stage’

“J.C. Penney is at a very critical stage in its history
and its very existence is at risk,” Ackman said in today’s
letter. “During a period like this one, it is absolutely
critical that we work together to solve our problems. It is
essential that our board function extremely effectively or we
will certainly fail.”

Perry Capital founder Richard Perry said today in a letter
to J.C. Penney’s board that it should name Questrom chairman and
choose Foot Locker’s Hicks for CEO.

J.C. Penney shares, which dropped 5.8 percent to $12.87 at
the close in New York, have slid 35 percent this year.

Questrom, 73, criticized J.C. Penney directors for moving
too slowly to find a permanent CEO after rehiring Ullman. He
said he had supported Ullman as interim CEO and had expected the
board “to use the time that Mike afforded them generously to
find a person who was long term.”

‘Long Shot’

In an interview yesterday from Aspen, Colorado, Questrom
called returning as chairman “a long shot,” hinging on
directors forming “a positive board and an aggressive board to
help solve the problems.” He also said he’d return only if the
board hired a new CEO who had previously served as a chief
executive and had retail experience, preferably with department
stores.

Ullman, who had served as J.C. Penney’s chairman and CEO
for about seven years, has the board’s support.

“Mike is the right person to rebuild J.C. Penney by
stabilizing its operations, restoring confidence among our
vendors, and getting customers back in our stores,” Engibous
said in a statement yesterday after the market closed. “He has
the overwhelming support of the Board of Directors, and we are
confident the Company is in good hands.”

Since taking over, Ullman has been trying to woo back
middle-aged women, the chain’s core customers, who decamped when
Johnson changed the merchandise mix to attract younger shoppers
and reduced discounts. Ullman has revived so-called
“doorbusters” bargains usually reserved for the holiday-shopping season.

New Marketing

Marketing has been refocused on bargains and private-label
lines like St. John’s Bay, a $1 billion brand whose women’s
apparel was discontinued under Johnson. The company is bringing
back three other brands popular with older, female shoppers: the
lingerie line Ambrielle, outdoor-apparel Made for Life and JCP
Home.

Ullman also has labored to shore up J.C. Penney’s cash
balance. Along with hiring AlixPartners in April, the company
started negotiating a $2.25 billion loan arranged by Goldman
Sachs Group Inc. and borrowed $850 million from a revolving
credit facility.

J.C. Penney isn’t Ackman’s first foray into retail. He
raised a $2 billion investment vehicle in 2007 that bought a
stake in Target Corp. that lost 90 percent of its value over the
next two years. At the time, Ackman called it “one of the
greatest disappointments” of his career. Pershing Square sold
its Target stake in the first quarter of 2011, after
shareholders rejected a board slate nominated by Ackman.

Unusual Move

Ackman’s sudden outburst of criticism of his fellow J.C.
Penney board members is unusual, said Charles Elson, director of
the John L. Weinberg Center for Corporate Governance at the
University of Delaware.

“Given the fact that he has been so involved with
directors for some time now and was involved heavily in hiring
the last CEO, it’s very surprising he’s launched such a public
dispute,” Elson said.

Pershing Square International Ltd., the firm’s largest fund
at $4.9 billion in assets, rose 3.7 percent this year through
July, according to a performance update sent to clients. U.S.
stocks returned 20 percent and hedge funds on average gained 3.2
percent in the period, according to data compiled by Bloomberg.